Top 5 Stocks the Smart Money Is Buying Now!

All right, you guys know the story. It's now been more than 45 days since the end of Q3; thus, the 13F filings are out. So in this video, we're going to take a look at the five most bought stocks by our super investor friends for Q3 of 2022, a quarter that saw the S&P 500 both gain 12 and lose 17. So there was certainly volatility in the broader market, and there was volatility in some of the world's largest stocks as well. Just have a look at some of these stock charts: Apple, Amazon, Google, Microsoft, Tesla—all bouncing around a lot in Q3.

So with that said, what businesses piqued the interest of our 79 super investors this time round? Well, let's find out.

Okay, let's start by just very quickly flying through stocks ten to six, and then we'll spend a little bit more time going through the top five. The 10th most bought stock this quarter was, in fact, Micron—a big American producer of computer memory and computer data storage. So there's a big 180 happening right now in consumer electronics as businesses slash profit forecasts, and it's causing mayhem in stock prices in the space. In fact, if you look at Micron stock from the start of the year until the end of Q3, it's basically halved.

So chances are, a lot of the value crowd see long-term potential in this one, including people like Monish Pabrai, Guy Spier, and Seth Klarman. Next up, coming in at number nine, we have Disney. Disney is another stock that's been beaten down this year, yet operationally, you know their park segment is continuing to improve post-COVID, and they keep adding lots and lots of subscribers to Disney Plus, which is their main growth engine for the next five years or so. Overall, Disney is a diversified proven business model, and I think the super investors like that deal, especially as, here today, the stock has dropped nearly 40 percent.

They're moving on. Coming in at number eight, it's PayPal—a very dominant player in online payments. As of September, they had 41% of that market, and with the stock back to levels not seen since the depths of the 2020 market crash, I think definitely some of the super investors are seeing this as a long-term opportunity. Next up, number seven, we have Salesforce, who offer a very well-known customer relationship management platform—down 43% from the start of the year to the end of Q3—but this is honestly not one I follow, so I can't add too much flavor on this one.

Then next up at number six, we have Booking Holdings, which is a collection of travel-related businesses including Booking.com, Priceline.com, Kayak, Agoda, RentalCars.com, and OpenTable. They, like all travel businesses, got hurt a lot in 2020 and 2021, but are now well and truly recovering. This was also a popular stock in Q2, with eight super investors buying in, and same again this quarter, and fair enough, as the stock has trended further down in Q3 versus Q2.

Okay, so that is a very, very quick word on stocks 10 through 6, and now let's dive a little bit deeper into the five most bought stocks. So let's just keep this thing rolling. The fifth most bought stock by our super investors this quarter was Visa. Now I do have to say, Visa is not really a stock in my own circle of competence; however, it is a very well-known Buffett-style stock thanks to its massive moat, a massive network effect, and now can basically just collect tolls as it's the world's number one payment facilitator.

Essentially, every time you go to tap your card at the shopping center, Visa's job is to connect the store's bank with your bank and actually facilitate the transfer of money across to complete the transaction. They have the technology that facilitates these payments quickly, accurately, and safely, and they charge the merchant a very small fee for every transaction that they facilitate. While this fee is tiny, it definitely adds up, as in the 12 months ending September 30th, 2022, Visa processed 192.5 billion transactions. As a lot of payments, overall, they enjoy an approximate 50% market share by purchase volume, with Mastercard at 23% and with American Express, the next largest at 19%.

Plus, if we turn over to Simply Wall Street, you can see that currently they have a slightly lower PE ratio versus their peers, and they are slightly undervalued by a standard discounted cash flow analysis. With the stock at one point dipping 18% in Q3, clearly, some super investors saw that as an opportunity to buy. So that's Visa. Then coming in at number four, we have Amazon. What? I thought Amazon stock was dying!

Well, I think this story boils down to an amazing business going through a particularly tough patch right now because, if you look now, the stock has basically eliminated all of the gains it saw thanks to the pandemic shutdowns and is now down around 50% for the year. But here's the deal: Amazon has been sinking 60 billion dollars a year into growing their capacity, and they actually have managed to roughly double their revenue since 2020. However, what's happening right now is that despite all of this investment in increasing capacity, unfortunately, consumers have a lot less discretionary income than say in 2020 and 2021, due to stimulus payments stopping and interest rates now rising.

So now Amazon has to weather this tough economic patch where consumer spending has done a 180, but they've got all these higher costs from all their investments. Anyway, the result is, yes, revenue is higher, sure, but also cost of goods sold is higher, as you can see here: operating expenses are a lot higher; headcount is a lot higher, for example, and ultimately, net income is lower and free cash flow is tanking. There's fear in the media; Amazon announces layoffs, and all of a sudden, the stock dives. But it's still obviously a really solid company; it's just that a company like Amazon will always be somewhat at the mercy of the current macroeconomic climate and, of course, consumer spending.

However, that didn't stop 11 of our super investors from buying more in Q3, and if we turn over to Simply Wall Street again, we can see that they hint at a solid margin of safety from a discounted cash flow analysis at the current time. Of course, that doesn't mean you should just go out and buy it, but it does highlight that maybe you want to go in and do a little bit more research on this one, as it may present some sort of opportunity.

By the way, all of these stocks that I'm talking about today have actually been published in a discovery collection over on Simply Wall Street, so if you did want to check out this list and then go and check out valuation, future expectations, past performance, financial health on literally any of these companies, head to the link down in the description or the pinned comment. If you did want to get access to the premium version of Simply Wall Street that I use for my videos, you can get 40% off through those links down below.

But moving on now to the third most bought stock by our super investors, and this time around, it was Meta. Thirteen super investors added to Meta in Q3, and let's be real, it's no surprise as to why. In Q1, this is one of the most bought stocks; in Q2, this is one of the most bought stocks, and with the stock falling another 15% across Q3, it's no surprise that Meta, yep, it slots into this list yet again.

So, what's the deal with Meta? Well, it's a huge moat company again; it has a very large network effect. But of course, Meta's business has changed quite a bit recently. It used to be a much more simple just straight-up money printer, low cost, and all they did was just show ads on their apps and just print money. But now, obviously, a lot has changed; you know, with the macroeconomic environment as it is, big advertisers have been pulling back on their budgets. For example, in Q3, Meta did see an 18% year-over-year reduction in price per ad, but also they're burning a lot of money on metaverse development right now, which is giving them a lot less profit.

For example, in Q3, their R&D ballooned year-over-year to 9.1 billion dollars, but their revenue actually shrunk, leaving just 4.4 billion in net income versus 9.1 billion in Q3 of 2021. That, plus weak Q4 guidance, and the stock has kept falling now into Q4 as well. So begs the question: why are all these super investors still interested? Well, I think this is another case of copying short-term pain for potential long-term gain. But remember, Wall Street can't hang around for that; thus, the stock price crashes.

Our super investors, on the other hand, they know the value of being long-term focused, so they can wait these things out. Beyond that, I think it's also worth remembering that Meta do have a big advantage here because all of this increased spending isn't necessarily forced; you know, they want to do this. If their situation drastically changed and all of a sudden their business sucked, they could just press pause on the metaverse project and become a lot more profitable again. But overall, 13 super investors bought into Meta in Q3, and if we turn over to Simply Wall Street, we can see Meta sits at a very low 10.3 PE with a very healthy margin of safety on their discounted cash flow analysis.

Okay, moving on to the second most bought stock, and it is Microsoft. Microsoft was another poor performer in Q3, with the stock ending the quarter down 10%. But again, this is a big wide moat company with all the various B2B and B2C products that Microsoft makes. Overall, Microsoft has three revenue segments: they have productivity and business processes, which is Office 365, commercial and consumer, as well as Dynamics and LinkedIn; then they have intelligent cloud, which is Azure and other cloud services; and lastly, they have personal computing, which is Windows, Surface, and Xbox and that sort of stuff.

For Microsoft, these three businesses each make up roughly one-third of their revenue, and they were making about one-third of their operating income each. But what we've seen over the past few quarters is that their cloud segment is just absolutely ripping, and their personal computing segment is slowing. This is very much a result of the macro environment and the consumer having a lot less to spend right now. So while businesses still need Microsoft's cloud services to run and all that good stuff, the consumer is saving money where they can, and PC sales are way down.

But overall, Microsoft is generally very well protected thanks to their economic moats in software and cloud, and thus, despite the stock falling around 28% year-to-date, it continues to attract these long-term-minded super investors. And with that said, now we hit number one. So, drum roll please, let's get into it! The most bought stock by our super investors in Q3 of 2022 was Google. We had nine super investors buying into the C shares and 12 buying into the A shares during the quarter.

And again, no surprise at all because, number one, Google got 12% cheaper across Q3, and also, number two, it's usually one of the most bought stocks by our super investors. So with that said, what's the deal with Google? Well, it has an incredibly strong balance sheet with minimal debts—literally got 22 billion in plain cash and only 14.6 billion in long-term debt. They have a massive moat in online search and digital advertising, as shown by this table here. You know, over the past five years, they've been able to grow their revenue by 24% annually, EPS by 46% annually, equity by 13%, free cash flow by 23%.

Then in terms of management skill, they've maintained an average return on investor capital of 18% over the past five years. As we said before, that debt management has been very, very good. You know, at the end of the day, this is a rock-solid business. But, of course, that's only half the equation because we also need to pay a fair price. But with so many super investors jumping in right now, it does seem to suggest that maybe we should be revisiting our discounted cash flow analysis.

It's worth noting the inbuilt discounted cash flow analysis over on Simply Wall Street shows quite a healthy discount at current levels. I'm not even sure if they're factoring their cash position into that equation because, of course, remember, if you are looking to buy, say, a house for half a million bucks, if you knew there was a hundred thousand dollars buried in the backyard, that would obviously alter what you’d be willing to pay for the house.

But overall unless this stock shoots up a lot in the next quarter, I think this will continue to be one of the most bought stocks and it will keep up at the top of this list. But overall, guys, with that said, definitely let me know what you think down in the comments section below. You know, do you hold any of these businesses? Do you agree or disagree with the super investors this time around? Definitely, let me know. Also, big thanks to Simply Wall Street for sponsoring as always, and as I said before, you can get 40% off using the link in the pinned comment and also in the description.

But apart from that, guys, thanks very much for watching. Please leave a like on the video if you did enjoy it. Please subscribe to the channel if you'd like to see more. But with that said, guys, I'll see you all in the next video.